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Risk Premiums in the German Day-Ahead Electricity Market

Author

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  • Viehmann, Johannes

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

Abstract

This paper conducts an empirical analysis of risk premiums in the German day-ahead Electricity Wholesale Market. We compare hourly price data of the European Energy Exchange (EEX) auction and of the continuous over-the-counter (OTC) market taking place prior to EEX. As OTC price data are not publicly available, data provided by the Energy Exchange Austria (EXAA) have been used as a snapshot of the OTC market. It has been found that market participants are willing to pay both, positive and negative premiums for hourly contracts that are significantly different from zero. The largest positive premiums were paid for evening peak hours on weekdays during winter months, the period of time with the highest electricity consumption levels of the year. By contrast, night hours on weekends featuring lowest demand levels display negative premiums. Hence, findings by Longstaff and Wang (2004) can be supported that power traders in liberalised markets behave like riskaverse rational economic agents.

Suggested Citation

  • Viehmann, Johannes, 2010. "Risk Premiums in the German Day-Ahead Electricity Market," EWI Working Papers 2009-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    • Handle: RePEc:ris:ewikln:2009_001
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    More about this item

    Keywords

    Electricity trading; Risk premium; EEX;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • N74 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: 1913-
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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